Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

United states Automobiles / Thematic (Sector/Industry)

<p>February SAAR came in at 17.08m units, down 0.2% sequentially and by 2.8% YoY.  What was noticeable was that retail SAAR was most likely much lower on a sequential basis, coinciding with the sequential drop in overall incentive spending.  Here are some of our initial impressions:</p><ul><li><div class="content-highlight">Retail SAAR for February is initially estimated at about 13.3m units, down by 2.8% sequentially while up by 2.6% YoY.  While January-February is a seasonally low volume period of the year we believe investors should keep watch on how retail selling rate pans out over the course of 1H18.</div></li><li><div class="content-highlight">Anecdotal evidence suggests that at the dealer level, there is less financing for the end customer, which could partially explain why incentive figures have been dropping sequentially.  </div></li><li><div class="content-highlight">Light truck mix in industry terms reached 66% in February, down from 67% in January but up from 62% in February 2017.</div></li><li><div class="content-highlight">YTD average incentive spending on a YoY basis continued to rise at 5.5%.  While car incentives saw a 4.7% YoY rise, light trucks saw a more aggressive 5.6% YoY increase, driving up the overall industry average</div></li><li><div class="content-highlight">While the sequential drop in incentive spending came largely from D3, there are two factors that we think investors should consider: Asian brands continue to increase incentive spending and 1Q is traditionally not a high incentive spending season for the D3.  A key test should be where incentive head in late Spring to Summer which is a strong marketing season in the U.S. market.</div></li><li><div class="content-highlight">Key products to watch for D3 should be Ford's Eco Sport and the full model change for GM in March.  Due to retooling for the Silverado, light pickup truck volumes have been low at GM, which has been well anticipated in the U.S. market.</div></li><li><div class="content-highlight">Hyundai has seen a 16% YoY increase in light truck sales but continued to see car sales drop, by 24% YoY, through February.  For Korean brands, the test this year is likely to be whether the rise in light trucks shipments can compensate for the drop in car sales, most notably in the ageing mid-size segment. </div></li></ul>

February SAAR came in at 17.08m units, down 0.2% sequentially and by 2.8% YoY.  What was noticeable was that retail SAAR was most likely much lower on a sequential basis, coinciding with the sequential drop in overall incentive spending.  Here are some of our initial impressions:Retail SAAR for February is initially estimated at about 13.3m units, down by 2.8% sequentially while up by 2.6% YoY.  While January-February is a seasonally low volume period of the year we believe investors should keep watch on how retail selling rate pans out over the course of 1H18.Anecdotal evidence suggests that at the dealer level, there is less financing for the end customer, which could partially explain why incentive figures have been dropping sequentially.  Light truck mix in industry terms reached 66% in February, down from 67% in January but up from 62% in February 2017.YTD average incentive spending on a YoY basis continued to rise at 5.5%.  While car incentives saw a 4.7% YoY rise, light trucks saw a more aggressive 5.6% YoY increase, driving up the overall industry averageWhile the sequential drop in incentive spending came largely from D3, there are two factors that we think investors should consider: Asian brands continue to increase incentive spending and 1Q is traditionally not a high incentive spending season for the D3.  A key test should be where incentive head in late Spring to Summer which is a strong marketing season in the U.S. market.Key products to watch for D3 should be Ford's Eco Sport and the full model change for GM in March.  Due to retooling for the Silverado, light pickup truck volumes have been low at GM, which has been well anticipated in the U.S. market.Hyundai has seen a 16% YoY increase in light truck sales but continued to see car sales drop, by 24% YoY, through February.  For Korean brands, the test this year is likely to be whether the rise in light trucks shipments can compensate for the drop in car sales, most notably in the ageing mid-size segment. 

February U.S. Auto Demand: Retail SAAR Weaker on Lower Incentives